Bond Ratings and Texas Municipal Market Update

Transcription

1 Bond Ratings and Texas Municipal Market Update GTOT 2017 Winter Seminar Steve Murray Senior Director December 5, 2017

2 Session Objectives Discussion and Update on the Following Topics 1. Hurricane Harvey Update 2. Texas K-12 Education Funding Update 3. Texas Muni Bond Volume for 2017, 2017 Bond Election Results 4. Fitch U.S. Public Finance Update Nov Dallas and Houston Pension Legislation 6. Fitch U.S. Trade Policy Update 7. Securitization City of Chicago Sales Tax Securitization Corporation 1

3 Hurricane Harvey Update Fitch Credit quality in storm-affected areas unlikely to be affected by Hurricane Harvey Presidential disaster declaration in late August started the process of making assistance available As has been the case historically, combination of federal and state support and insurance proceeds helps local governments do repairs Katrina in 2005 was notable exception to disaster recovery model Post-storm purchases of lost items typically provides a sales tax boost Smaller communities with limited liquidity likely most affected 11/20/2017 2

4 Texas K-12 Education Funding Update In Aug. 2017, Fitch affirmed State of Texas at AAA /Stable (Issuer Default Rating) biennium outcomes: House voted to adopt the Senate s plan, $1.5B less than House wanted. Total TEA appropriation up, but property value growth has reduced portion funded from state sources No cuts in state s formula funding; student growth fully funded, although no increase to basic allotment funding levels Changes in appropriation will infuse public schools with $350MM, mostly going to smaller districts and to kids with disabilities Boost to the retired teachers health care benefits fund ($212MM); also, increase in state, school districts contribution to TRS-Care-max school district contribution allowed by statute New charter school facilities funding at about $60MM Creation of a statewide commission to study the current public school finance system. 11/20/2017 3

5 Texas Muni Bond Volume for Annual TX Muni Bond Volume ($MM)

6 2017 Texas Muni Bond Activity 1,409 Transactions YTD $36.3 billion total volume down 30% from record 2016 total New money transactions more than twice refunding volume Schools are largest component at 30%, followed by cities (20%) and authorities and corporations (11%) Texas ranks 3 rd to California and New York YTD in muni bond volume ($32.3B thru end of October vs. $55.5B in CA and $37.6B in NY) 5

7 Texas 2017 Bond Election Results Summary of elections held on 11/07/2017 Issuer Type Elections Total Propositions Bonds Carried Carried % Cities 15 $3,005,980,000 $2,933,565, % Counties + Road Dist + Tollway Auth 7 $707,400,000 $562,400, % Jr/Community Colleges, Other 3 $140,700,000 $85,000, % Schools 55 $8,176,599,291 $7,349,514, % Water and Special Districts 16 $1,844,570,000 $1,823,735, % Total 44 $13,875,249,291 $12,754,214, % 6

8 Fitch U.S. Public Finance Update November 2017 Nearly all sectors are considered Stable (e.g. tax supported, water and wastewater, public power, higher education, housing) Healthcare is the only sector with a Negative Outlook uncertainty regarding the legislative landscape Economic growth continues to support positive state and local revenue trends; spending pressures are manageable Key Risks strength and duration of the economic expansion, deferred capital, post-employment benefits Average general government rating in the AA category 7

9 Dallas and Houston Pension Legislation Both Dallas and Houston have had chronic pension challenges Dallas Plans Pension issues existed with both the employee plan and police and fire plan: ERF experienced sizable investment losses, increasing NPL DROP role in DPFP emerged as a significant risk to the plan City and police and fire pension board presented competing reform proposals Houston Plans All three plans challenged, due in no small part to past benefit increases Weak funding levels, contributions below required amounts pointed to continued pressure Contributions were ramping up in recent years 8

10 Dallas and Houston Pension Legislation cont d. Dallas Police and Fire Pension Legislation HB 3158 made some notable reforms: - Increases in retirement ages - Contribution increases, reduction in benefit multipliers, elimination of COLAs - Notable changes to DROP program time limit on participation, elimination of interest paid on accounts, distribution revisions Actuarial analysis shows a nearly 25% reduction in the plan liability Houston Pension Legislation SB 2190 also made notable reforms: - Reduction in plan benefits, discount rate - Amortization over 30-year closed period - Increased employee contributions, city contribution corridor $1 billion pension obligation bond issue part of reforms; approved by 70% of voters 9

11 Fitch U.S. Trade Policy Update Two-part report (Aug. and Nov.) examining possible impacts from changes to U.S. trade thru NAFTA negotiations Key takeaways: Specific impacts from renegotiation are difficult to predict Michigan most exposed state; Texas and California more insulated Texas metro areas most at risk are El Paso, Dallas-Fort Worth, Houston Trade rhetoric may be contributing to declines in passenger vehicle border crossings seen in first half of 2017; truck crossings up modestly Tax receipts in some border communities also seeing declines (although currency fluctuations also may be a factor) 10

12 Securitization City of Chicago Sales Tax Securitization Corporation Fitch currently rates the City of Chicago IDR BBB-, Stable Outlook Sales tax securitization corporation was recently formed as a separate financing vehicle a bankruptcy remote issuer City has agreed to sell all right, title and license in certain revenues, most notably the city s home rule sales taxes First sale of $575 million will refinance city s outstanding sales tax revenue bonds Fitch rated the bonds AAA based on a very strong legal structure that insulates bondholders from operating risk, good revenue growth prospects and solid resilience 4/3/14 11

13 People in pursuit of answers 4/3/14 12

14 Disclaimer Fitch Ratings credit ratings rely on factual information received from issuers and other sources. Fitch Ratings cannot ensure that all such information will be accurate and complete. Further, ratings are inherently forward-looking, embody assumptions and predictions that by their nature cannot be verified as facts, and can be affected by future events or conditions that were not anticipated at the time a rating was issued or affirmed. The information in this presentation is provided as is without any representation or warranty. A Fitch Ratings credit rating is an opinion as to the creditworthiness of a security and does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. A Fitch Ratings report is not a substitute for information provided to investors by the issuer and its agents in connection with a sale of securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch Ratings. The agency does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS AND THE TERMS OF USE OF SUCH RATINGS AT 13

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